Federal Circuit Takes A Common Law Approach to “Abstract Idea” Determinations in Alice Cases

In Amdocs (Israel) Ltd. v. Openet Telecom Inc. et al., the U.S. Court of Appeals for the Federal Circuit recently upheld four software patents against a patent-eligibility challenge, finding that the patents do not claim an “abstract idea.” The patent challenge was under the frame work set out by the U.S. Supreme Court in its 2014 decision Alice Corp. v. CLS Bank. In Alice, the Supreme Court looked at the patentability of software patent claims under Section 101 by applying the two-step test it had set forth in Mayo v. Prometheus. In applying the two-step test, the Supreme Court instructed lower courts to first determine whether the claims are directed to an abstract idea. If they are, the second step is to determine whether the claims include elements showing an inventive concept that transforms the idea into a patent-eligible invention. While the Court in Alice stated it was treading carefully in invalidating the claims at issue and warned that applying the decision too broadly could “swallow all of patent law,” numerous patents have been invalidated by lower courts in light of the decision in Alice.

The Federal Circuit’s recent holding in Amdocs is a notable departure from this trend. It held there is no single rule on what constitutes an abstract idea, and instead applied a common law approach in analyzing the claims by comparing the claims to claims in prior cases. In so doing, the Federal Circuit also blurred the lines between the two distinct steps in the Alice two-step framework. Also of importance, the Federal Circuit used claim constructions and limitations found in the specification in finding the claims patent-eligible, paving the way for district courts to follow suit in making their patent-eligibility determinations under Section 101 for software patent claims.

The Amdocs v. Openet dispute traces back to 2010 when Amdocs sued Openet for patent infringement of four patents in the Eastern District of Virginia. The four patents at issue in Amdocs are all part of the same family, and the invention disclosed therein generally comprises parts of a system designed to solve an accounting and billing problem faced by network service providers by allowing network service providers to account for and bill for internet protocol (“IP”) network communications. After a lengthy procedural history, the District Court Judge found on a motion for judgement on the pleadings that the patents were directed to abstract ideas under the Alice framework because they were essentially directed to using a database to compile network usage information. On appeal, the Federal Circuit disagreed. The Federal Circuit held that the patents use unconventional new technological solutions like “distributed architecture,” to minimize the impact on network resources, rather than storing all the data in a central database.

In its analysis, the Federal Circuit first noted that in the application of the Supreme Court’s Alice standard, “there is considerable overlap between step one and step two, and in some situations th[e] analysis could be accomplished without going beyond step one.” The Federal Circuit reasoned this is the case because whether the “analysis is undertaken at step one or at step two, the analysis presumably would be based on a generally-accepted and understood definition of, or test for, what an ‘abstract idea’ encompasses.” However, the Federal Circuit then went on to note there is presently no “single, succinct, usable definition or test” for determining what constitutes an abstract idea, although “that is not for want of trying” by courts. “Instead of a definition, then, the decisional mechanism courts now apply is to examine earlier cases in which a similar or parallel descriptive nature can be seen — what prior cases were about, and which way they were decided.” Therefore the Federal Circuit explained “that is the classic common law methodology for creating law when a single governing definitional context is not available. We shall follow that approach here.”

Turning to the claims at issue, the Federal Circuit instructed that the claims should be analyzed “in light of the written description…in addition to taking into consideration the approved claim constructions.” The Federal Circuit reasoned that while the claim limitations “may be generic at first blush, an examination of the claim in light of the written description reveals that many of these components and functionalities are in fact neither generic nor conventional individually or in ordered combination.”

In particular, the court relied on the unconventional technological solution of enhancing data in a distributed fashion to solve the technological problem of massive record flows which previously required massive databases. Although, the solution requires arguably generic components, including network devices and “gatherers” which “gather” information, the Federal Circuit reasoned “the claim’s enhancing limitation necessarily requires that these generic components operate in an unconventional manner to achieve an improvement in computer functionality.” The Federal Circuit continued that “the enhancing limitation depends not only upon the invention’s distributed architecture, but also depends upon the network devices and gatherers—even though these may be generic—working together in a distributed manner.” Thus, the claim “limitation necessarily involves the arguably generic gatherers, network devices, and other components working in an unconventional distributed fashion to solve a particular technological problem.” In sum, the claims are “narrowly drawn to not preempt any and all generic enhancement of data in a similar system and do[] not merely combine the components in a generic manner, but instead purposefully arrange[] the components in a distributed architecture to achieve a technological solution to a technological problem specific to computer networks.”

In dissent, Circuit Judge Jimmie Reyna strongly disagreed with the Federal Circuit majority. He criticized the majority’s approach involving “the mechanical comparison of the asserted claims in this case to the claims at issue in some, but not all, of the cases where we have addressed patent eligibility after the Supreme Court’s decision in Alice.” The majorities’ approach “avoids determining whether the asserted claims are directed to an abstract idea, or even identifying what the underlying abstract idea is,… [and] is contrary to the Supreme Court’s direction in Alice.” Moreover, “the majority also relies on the specification to import innovative limitations into the claims at issue…[which] contravenes the fundamental principal that the section 101 inquiry is about whether the claims are directed to a patent-eligible invention, not whether the specification is so directed.”

After numerous rulings in district courts and at the Federal Circuit in the last few years invalidating software patents under Alice, Amdocs and other recent Federal Circuit rulings provide examples of how software claims can pass Section 101 eligibility challenges through proper framing. These cases also show the weight of authority may be signaling software patents are better challenged under other means such as anticipation, obviousness, and Section 112 challenges, and not Section 101.